Inflation in Turkey climbs to 70%, putting Erdogan in a bind

A man looks at a butcher shop window in Ankara, Turkey February 16, 2022. REUTERS/Cagla Gurdogan

ISTANBUL, May 5 (Reuters) – Turkey’s annual inflation hit a two-decade high of 69.97% in April, data showed on Thursday, fueled by the Russia-Ukraine conflict and rising oil prices. energy and raw materials after the crash of the pound last year.

Soaring prices have put a strain on households just over a year before presidential and parliamentary elections that could bring down the curtain on President Tayyip Erdogan’s long reign.

Erdogan came to power as prime minister in 2003 before transitioning the country to a presidential system, and unorthodox interest rate cuts made under his pressure last year have been blamed for lighting a fire below inflation.

On a month-to-month basis, consumer prices rose 7.25%, the Turkish Statistical Institute said, against a Reuters poll forecast of 6%. Annually, consumer price inflation was forecast at 68%.

“It’s about rising food and energy prices, but also the spectacular failure of monetary policy in Turkey – and the abject and utter failure of Turkey’s unorthodox monetary policy. Erdogan,” said strategist Timothy Ash of Bluebay Asset Management.

Last year’s currency slide was triggered by a 500 basis point easing cycle that began last September under pressure from Erdogan, causing the sustained surge in consumer prices that was fueled by fallout from the Russian invasion of Ukraine.

The surge in consumer prices was led by a 105.9% jump in the transportation sector, which includes energy prices, and an 89.1% jump in food and non-alcoholic beverage prices. , according to the data.

Month-over-month, food and non-alcoholic beverage prices rose the most with 13.38% and house prices rose 7.43%.

The lira plunged 0.9% to 14.8525 against the dollar after the data was released.

Presidential and parliamentary elections are scheduled by June 2023 and opinion polls show support for Erdogan is declining.

“The really remarkable thing here is that opinion polls still suggest the next election is still up in the air. That perhaps says as much about the opposition as Erdogan does,” Ash said.

LITTLE SURPRISE

The government has said inflation will fall under its new economic program, which prioritizes low interest rates to boost production and exports in a bid to achieve a current account surplus.

However, economists estimate that inflation will remain high for the rest of 2022 due to the war, with the median inflation estimate at year-end standing at 52%. The current account deficit also widened sharply at the start of the year. Read more

Last week’s Reuters poll showed that annual inflation is expected to reach 52% by the end of the year. Inflation reached its last level in 2002, after reaching 73.1% in February of the same year.

Inflation continued to rise despite commodity tax cuts and government subsidies for some electricity bills to ease the load on household budgets. Read more

Last week, the central bank predicted annual inflation would peak at around 70% by June before dropping to nearly 43% by the end of the year and single digits by the end of 2024. .

The central bank has held its benchmark rate steady at 14% in four meetings this year and said measures and policy moves will prioritize so-called liraization in the market.

The national producer price index climbed 7.67% month on month in April for an annual increase of 121.82%.

Additional reporting by Berna Suleymanoglu, Oben Mumcuoglu and Nevzat Devrangolu; Written by Daren Butler; Editing by Jonathan Spicer and Simon Cameron-Moore

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